How Hard Is It To Pay Off Student Loans
It’s hard to pay off student loans, and it can feel like an impossible task. But just how hard is it?
A recent study by LendEDU looked at the average amount of time it takes people to pay off their student loans, as well as how much interest they’ll pay in total. The results are telling.
The study found that one in five Americans have student debt, with an average balance of $30,000. While some graduates are able to pay off their loans quickly, most people take longer than expected to do so—and that’s not good news for your wallet or your credit score.
Here are some stats from the study:
- It takes the average person 19 years to pay off their student loan debt
- The average amount paid for interest over those 19 years is $17,000
- One in four borrowers will never pay off their loans at all
How Hard Is It To Pay Off Student Loans
Report Highlights. The average student borrower takes 20 years to pay off their student loan debt.
Some professional graduates take over 45 years to repay student loans.
21% of borrowers see their total student loan debt balance increase in the first 5 years of their loan.
The average medical school graduate’s salary is not sufficient to make their student loan payments.
Use a student loan payoff calculator to see how fast you could get rid of your loans and how much money in interest you’d save. Here are seven strategies to help you pay off student loans even faster.
- Make extra payments the right way
There’s never any penalty for paying student loans early or paying more than the minimum. But there is a caveat with prepayment: Student loan servicers, which collect your bill, may apply the extra amount to the next month’s payment.
That advances your due date, but it won’t help you pay off student loans faster. Instead, instruct your servicer — either online, by phone or by mail — to apply overpayments to your current balance, and to keep next month’s due date as planned.
You can make an additional payment at any point in the month, or you can make a lump-sum student loan payment on the due date. Either can save you a lot of money.
For example, let’s say you owe $10,000 with a 4.5% interest rate. By paying an extra $100 every month, you’d be debt-free more than five years ahead of schedule, if you were on a 10-year repayment plan.
- Refinance if you have good credit and a steady job
Refinancing student loans can help you pay off student loans fast without making extra payments.
Refinancing replaces multiple student loans with a single private loan, ideally at a lower interest rate. To speed up repayment, choose a new loan term that’s less than what’s left on your current loans.
Opting for a shorter term may increase your monthly payment. But it will help you pay the debt faster and save money on interest.
For example, refinancing $50,000 from 8.5% interest to 4.5% could let you pay off your student loan debt nearly two years faster. It would also save you about $13,000 in interest, even with payments that stay about the same.
You’re a good candidate for refinancing if you have a credit score in at least the high 600s, a solid income and a debt-to-income ratio below 50%. You shouldn’t refinance federal student loans if you want or need programs like income-driven repayment and Public Service Loan Forgiveness.
» MORE: Can you use a personal loan to pay off student loans?
Would refinancing save you money?
Lower your student loan payments
Get pre-qualified for refinancing to compare real rates and see what you could save each month.
- Enroll in autopay
If you don’t want to refinance your loans, signing up for autopay is another potential way to lower your student loan’s interest rate.
Federal student loan servicers offer a quarter-point interest rate discount if you let them automatically deduct payments from your bank account. Many private lenders offer an auto-pay deduction as well.
The savings from this discount will likely be minimal — dropping a $10,000 loan’s interest rate from 4.5% to 4.25% would save you about $144 overall, based on a 10-year repayment plan. But that’s still extra money to help pay off student loans fast.
Contact your servicer to enroll or find out if an autopay discount is available.
» MORE: How to pay off parent PLUS loans faster
- Make biweekly payments
This simple strategy is a way to trick yourself into paying extra on debt: Pay half of your payment every two weeks instead of making one full payment monthly.
You’ll end up making an extra payment each year, shaving time off your repayment schedule and dollars off your interest costs. Use a biweekly student loan payment calculator to see how much time and money you can save.
Frequently asked questions
What is the fastest way to pay off student loans?
Are there loans to pay off student loans?
When do you pay back a student loan?
- Pay off capitalized interest
Unless your loans are subsidized by the federal government, interest will accrue while you’re in school, your grace period and periods of deferment and forbearance. That interest capitalizes when repayment begins, which means your balance grows, and you’ll pay interest on a larger amount.
Consider making monthly interest payments while it’s accruing to avoid capitalization. Or make a lump-sum interest payment before your grace period or postponement ends. That won’t immediately speed up the payoff process, but it will mean a smaller balance to get rid of.
» MORE: How much will deferment or forbearance cost you?
- Stick to the standard repayment plan
The government automatically puts federal student loans on a 10-year repayment timeline, unless you choose differently. If you can’t make big extra payments, the fastest way to pay off federal loans is to stay on that standard repayment plan.
Federal loans offer income-driven repayment plans, which can extend the payoff timeline to 20 or 25 years. You can also consolidate student loans, which stretches repayment to a maximum of 30 years, depending on your balance.
If you don’t truly need these options and can afford to stick with the standard plan, it will mean a quicker road to being debt-free.
- Use ‘found’ money
If you get a raise, a student loan refinance bonus or another financial windfall, allocate at least a portion of it to your loans. Consider using this breakdown: 50% of the extra income can go toward debt, 30% to savings and 20% to fun, discretionary spending.
Some companies pay off student loans as an employee benefit. Find out if your company offers an employer student loan repayment program, and be sure to enroll.
You can also start a side hustle to pay off student loans fast. Sell items like clothing, unused gift cards or photos; rent out your spare room, parking spot or car; or use your skills to freelance or consult on the side.v
Consider setting up rules for yourself, like putting any $5 or $10 bills you receive toward your loans. Some money-saving apps, like Digit and Qapital, will help you set savings goals and rules as well.
pros and cons of paying off student loans early
- Your Debt-to-Income Ratio
One good reason to pay off your student loans is that it will lower your debt-to-income (DTI) ratio, which measures how high your monthly debt payments are, compared to your monthly income. If you pay off your student loans, you’ll not only be free of those monthly payments, but you’ll also be able to reach other financial goals more easily.
A lower debt-to-income ratio is also important if you plan to apply for new credit, especially a mortgage. Most lenders will view a lower DTI ratio as a sign that you can afford to take on and responsibly repay new debt. You’ll usually need a DTI under 43% to qualify for a mortgage, for example, and even lower DTIs of 30% to 35% to truly show that your debt is at a manageable level.1
Paying off student loans will lower your DTI, which in turn makes you more likely to get approved for loans or credit, and qualify for better rates and offers in the future.
- The Tax Break Isn’t That Great
One common misconception about student loans is that you should keep them for the tax break, which may be enough reason to put the student loans at the end of your repayment priorities.
You should realize that the student loan tax deduction has its limitations. The tax deduction is limited to $2,500 of student loan interest you pay. It also begins to phase out when your income reaches $70,000 and is eliminated at an adjusted gross income (AGI) of $85,000 (or $140,000 and $170,000, respectively, if you file a joint return) per year.2
Lastly, this deduction only indirectly lowers your tax bill by reducing your adjusted gross income.
This amount is nominal, and you may pay much more in interest than you’d save via the tax break over the life of your loans. It’s better to get rid of the student loans rather than hanging on to them for a tax break.
- It’s Costing You
Even if you take advantage of the student loan tax break, you should consider how much money you are losing each month due to both your student loan payment and interest.
Student loan interest is charged as a percentage of your current outstanding balance. As you make extra payments and lower your balance, the amount you’re charged will go down, as well. Paying off your student loans early also means you’ll pay less total interest, compared to your loan costs, if you follow your regular payment schedule.3
Depending on the amount of student loan debt you have, your payment may take up a sizable chunk of your budget. If you pay off your student loans, you’ll get rid of this payment and free up cash flow. You’ll also be able to achieve other financial goals more quickly, such as saving up for a down payment on your first home, taking a trip, creating an investment portfolio, or starting your own business.
- It’s Virtually Inescapable
Many people who are overwhelmed by student loan debt hope that bankruptcy may offer a solution to their problem. However, if you declare bankruptcy, it’s rare that your student loans will be pardoned through that process. Borrowers have to file a separate action to get student loans discharged in bankruptcy, and prove that repayment would impose “undue hardship.”4
Beyond declaring bankruptcy, there are few ways you can get rid of your student loans. Federal student loans and some private student loans are discharged after the borrower’s death or total disability.
Federal student loans also may be forgiven through qualifying for certain student loan-forgiveness programs, such as Public Service Loan Forgiveness.5
Usually, a debt that is forgiven is considered taxable income by the Internal Revenue Service. However, if your student loan is forgiven between 2021 and 2025, the American Rescue Plan Act of 2021 provides that you won’t owe income tax on it.6
For most borrowers, the best way out of student debt is to repay it.
- Get Rid of Financial Worry
Student loans tend to be a great source of stress, hindering individuals from reaching financial stability. About one-third of college graduates between the ages of 25 and 39 say they are living comfortably financially, compared with 51% of graduates in the same age group who do not have outstanding student loans, according to data from Pew Research Center.7
If you want to reduce your financial stress, you should work on paying off your student loans. Even if you are nearing the end of your debt-payment plan, you can benefit by getting out of debt and reducing the amount you owe.
Creating a budget and a debt-payment plan should be a priority when you graduate from college, as those steps can help you clear up your debt and make it possible to stop worrying about money as much.
Reasons Not to Pay Off Student Loans Early
Getting out of debt fast sounds great, but it’s not always doable for everyone. Before you jump into a plan to decimate your student loan balance, take stock of your whole financial situation.
If you don’t have enough saved up: A healthy emergency fund can help you avoid going into debt when life gives you an expensive surprise. Prioritize building a savings reserve of three to six months’ worth of your crucial expenses before aggressively paying down student loan debt.
If you have other debt: Student loans have relatively low interest rates, compared with other forms of credit like personal loans and credit cards. Be sure to compare interest rates when deciding which debt to tackle first—student loans probably won’t be the first thing you want to get rid of if your main goal is to save money by getting out of debt.
Frequently Asked Questions (FAQs)
Is there a penalty for paying off student loans early?
There are no penalties for paying off student loans early, and you should be able to repay in full at any time. Check your loan agreement for more details about prepayment.
Will paying off my student loans help my credit?
Initially, paying off your student loan could cause your score to dip slightly. That’s because it takes one account out of your credit mix and might give more weight to other accounts like your credit cards. However, your score will bounce back after a few months and may even improve over time, as long as you maintain other good credit habits.
When do you start paying off student loans?
You must start repaying federal student loans six months after you graduate, unenroll, or drop below half-time enrollment.8 If you have private student loans, your repayment terms may be different—you may even need to make payments while you’re in school. Check your loan agreement for more information.